Papers Relating to the Foreign Relations of the United States, With the Annual Message of the President Transmitted to Congress December 3, 1906, (In two parts), Part II

Chargé Wilson to the Secretary of State.

American Legation,
Tokyo, April 5, 1906.

No. 429.]

Sir: I have the honor to confirm the legation’s cipher telegram of the 27th ultimo, reading as follows:

March 27, 10 p.m.

Sec. State, Washington:

To-night the Japanese Parliament has passed a bill for the government purchase of all the principal railways. The cost is estimated at about 300,000,000 yen, payable in 5 per cent government bonds. A tariff bill, moderately tending toward protection, was also passed. Consultation with American merchants has confirmed my opinion that American trade is not materially affected. Parliament formally closes to-morrow.

Wilson.

The railway purchase bill had been considerably amended by the House of Peers, who struck out 15 small railways, mostly branch lines, from those private lines to be purchased by the Government; extended the period for the completion of the purchase from five to ten years, and that for payment from two to five years; and introduced a provision for appeal to the ministries concerned in case of dissatisfaction on the part of a company with the terms fixed upon by the commission.

The minister president of state appeared on the floor of the house when this bill was taken up on the evening of the 27th ultimo and voiced the Government’s recommendation that the amendments be accepted.

The closing scene of the twenty-second session of the Japanese Diet which then followed is said to have been the most tumultuous so far witnessed in that body. When the leader of the Constitutionalist party in the House of Representatives moved that the railway purchase bill should be put to a vote without discussion as it had been sent back, amended by the House of Peers, and the chairman said that the motion had the approval of the House, there was much uproar and a personal encounter occurred between a group of government supporters and opposition members, which had finally to be quelled by the police. After this scene the opposition members withdrew or abstained from voting and the bill was passed unopposed.

The railway state ownership law, as it was passed, a translation of which I have the honor to forward herewith, shows the following salient features:

All of the principal private railways are to be purchased by the State between the years 1906 and 1915.

The prices to be paid are based, first, upon the average rates of profit, with reference to the cost of construction, during the six semiannual business terms between the second half of 1902 and the first half of 1905, multiplied by the cost of construction on the day of purchase and also by 20. For example, the cost of construction of a road at the time of purchase being $5,000,000, and the average rates of profit during said periods being 6 per cent thereof, the price that the government would be required to pay would be $6,000,000 (5,000,000X.06X20). In addition the government will be obliged to purchase material in stock and not yet used, paying for its actual cost by means of government loan bonds at their average current market value during six months preceding the purchase of the road.

The purchase price of any road shall be paid within five years from the date of purchase with 5 per cent government loan bonds at face value, and from the date of purchase until delivery of the bonds the government shall pay interest on the purchase price at the rate of 5 per cent.

Seventeen private railways are named in the law as subject to purchase and the cost is estimated at about 430,000,000 yen ($215,000,000.)

The estimate of 350,000,000 yen, which I had directly from the minister for finance, and which was given in the legation’s telegram, seems to fall short of the probable price to be paid by the Government.

On March 30 there was also promulgated a law, passed at the session just closed, for the purchase by the Japanese Government during the current year of the Seoul-Fusan Railway, in Korea. This company’s property includes the line between Seoul and Chemulpo. The purchase price is to be calculated, as to the line between Seoul and Fusan, on the basis of 6 per cent of its paid-up capital, multiplied by 20, and as to the line between Seoul and Chemulpo, on the same basis as is provided for in purchasing private railways in Japan. This price is to be paid within two years in government 5 per cent loan bonds at their face value. This issue of bonds, it is estimated, will amount to about 20,000,000 yen ($10,000,000).

The tariff measure mentioned in the legation’s telegram, confirmed above, will be reported in a separate dispatch when the correction of our translation is completed.

On the morning of March 28 the Diet was formally closed by imperial rescript.

I have, etc.,

Huntington Wilson.

[Inclosure.—Translation.]

railway state ownership law.

Article I. All railways used for transportation in general shall be owned by the State; but those which are intended for communication within limited localities shall be exceptions hereto.

Art. II. Between 1906 and 1915 the Government shall purchase, in accordance with the provisions of this law, the railways belonging to the following private railway companies:

• Hokkaido Colliery and Railway Joint Stock Compay.
• Hokkaido Railway Joint Stock Company.
• Japan Railway Joint Stock Company.
• Gan-etsu Railway Joint Stock Company.
• Hoku-etsu Railway Joint Stock Company.
• Kobu Railway Joint Stock Company.
• Sobu Railway Joint Stock Company.
• Boso Railway Joint Stock Company.
• Nanao Railway Joint Stock Company.
• Kansai Railway Joint Stock Company.
• Sangu Railway Joint Stock Company.
• Kyoto Railway Joint Stock Company.
• Nishinari Railway Joint Stock Company.
• Hankaku Railway Joint Stock Company.
• Sanyo Railway Joint Stock Company.
• Tokushima Railway Joint Stock Company.
• Kyushu Railway Joint Stock Company.

The companies mentioned above shall neither combine with any other private railway company nor purchase railways of any other private railway company.

Art. III. The dates of purchasing the respective railways referred to in the preceding article shall be designated by the Government.

Art. IV. The rights and obligations which the company actually has on the day of purchase shall be transferred to the Government, excepting, however, those pertaining to any additional businesses the company may be engaged in.

However, the company’s rights and obligations toward its stockholders, the balance of paid-up capital, the profit and loss account, the reserve fund, and the miscellaneous account, shall be exceptions hereto.

Art. V. The purchase price shall be calculated on the following basis:

(1) The average rates of profit with reference to the cost of construction during the six semiannual business terms between the second half of 1902 and the first half of 1905, multiplied by the cost of construction on the day of purchase and also by 20.

(2) The actual cost of articles in stock, except those bought with loans, calculated on the basis of the current price of government loan bonds.

By “profit” referred to in section 1 of this article is meant the surplus of gross income arising from business over and above business expenditures, bonuses to the staff, and interest on various accounts besides the profit and loss account. By the “average rates of profit” is meant the aggregate profit between the second half of 1902 and the first half of 1905, divided by the aggregate cost of construction during the same period and multiplied by 2.

Art. VI. Of the money borrowed, what has been spent for construction only shall be deducted from the purchase price by calculating on the current price of government-loan bonds.

In case the company should fail to repair its railway and accessories or should neglect to reconstruct or remake the same within the period designated in the regulations for railway construction, the amount of money required for repair, reconstruction, or remaking shall be deducted from the purchase price in a manner similar to that which is provided for in the preceding clause.

Art. VII. The amount of money defrayed out of the capital, except that which has been paid with loans, shall be regarded as having gradually been used for construction and articles in stock.

Payments made from loans shall be regarded as having been made after the payment referred to in the preceding clause.

Art. VIII. In case the company should not possess lines that have been operated for six semiannual business terms at the end of the first half of 1905, or the amount obtained in the way specified in section 1 of Article V should be less than the cost of construction, the Government shall substitute the amount agreed upon, not to exceed the cost of construction, for the amount in section 1 of Article V.

Art. IX. The Government shall cause the committee on investigation to make decisions in the following cases:

(1) When there is an objection on the part of the company either as to the transference of rights and obligations or the settlement of accounts.

(2) When the parties concerned fail to come to agreement concerning the matter referred to in the preceding article.

In case the company should be dissatisfied with the decision of the committee on investigation, it may appeal to the minister of state concerned.

The regulations concerning the committee on investigation shall be fixed by an imperial ordinance.

Art. X. The execution of purchase shall not be suspended even during the examination by the committee on investigation.

Art. XI. When the company becomes disorganized owing to purchase by the Government, the minister of state concerned shall request the registration of disorganization at the registration office.

Art. XII. The purchase price shall be paid within five years from the date of purchase with 5 per cent government-loan bonds at face value. An amount less than 50 yen shall be regarded as 50 yen.

The distribution of the remainder of the company’s property shall be effected by means of government-loan bonds as provided for in the preceding clause.

The expenditures incurred by the company in settling accounts subsequent to the purchase and pending the delivery of the government-loan bonds shall be borne by the Government in accordance with official orders to be issued.

Art. XIII. From the date of purchase until the date of delivery of the government-loan bonds, the Government shall pay the company interest at the rate of 5 per cent per annum on the purchase price at each regular time of settling accounts.

The money paid as provided for in the preceding clause may, on the approval of the minister of state concerned, be distributed to the stockholders even while the accounts are being settled.

Art. XIV. The Government shall issue loan bonds not to exceed the amount necessary for executing the purchase of the railways.

Art. XV. The Government may issue loan bonds not to exceed the amount necessary for consolidating the loan bonds issued in accordance with the preceding article and the debt transferred in accordance with Article IV.

Concerning the preceding clause, the interest, the method of floating the loan, agreements in regard thereto, the period of the loan, and of the redemption of the same, shall be fixed by an official order.

Art. XVI. Concerning the loans provided for in the two preceding articles, the regulations for the consolidation loan shall be applied unless otherwise specially provided for in this law.

Art. XVII. The current price of the loan bonds provided for in sections 1 and 2 of Article V and Article VI shall be calculated on the basis of the average price of the 5 per cent government-loan bonds during the six months preceding the date of purchase.

The average price referred to in the preceding clause shall be decided by the Government according to the certification of the Bank of Japan.

Art. XVIII. In case the company whose railway is to be purchased should be engaged in any additional business, the property belonging to such additional business may also be purchased.

Concerning the preceding clause, the purchase price shall be fixed by an agreement.

The provisions of this law from Article IX to Article XVI shall be applied to such cases as referred to in this article.

supplementary law.

Concerning the purchase of articles in stock, measures that may increase or decrease the cost of construction, and the contracting of debts subsequent to the date of promulgation of this law, the companies whose names are mentioned in Article II shall apply to the minister of state concerned for approval.

In the case of the items mentioned in the preceding clause, even though the approval of the Government has not been obtained, the Government may appraise their value and take them over by receiving a reasonable reimbursement.